Portrait of an Ascending Sovereign Credit
Well capitalised and liquid banking sector
The Latvian banking sector entered Covid-19 crisis as well capitalized, liquid and profitable, with a high presence of large
Nordic and Baltic banking groups
Key Highlights
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The Latvian banking sector is dominated by subsidiaries and branches of
banks from the European Economic Area, mostly from Nordic countries
Capitalization and liquidity ratios are well above minimum requirements
Since Latvia is a part of the European Banking Union, two banks are
directly supervised by the ECB and three banks under the remit of the
SRB
In the short term negative effects of Covid-19 outbreak on the financial
stability are mitigated by the government support package for businesses
(incl. loan guarantees and subsidized loans) and households, ultra-
accommodative monetary policy and greater regulatory flexibility
A private moratorium signed by major lenders allowed bank clients who
were experiencing temporary financial difficulties due to Covid-19 to defer
their mortgage principal payments 6 months (businesses) or 12 months
(individuals). Businesses and households may have applied for loan
principal deferrals before 30 September 2020.
Capital Adequacy (%)
Capital Ownership of the Banking System (20 2020)
Source: Bank of Latvia
17%
■Domestic
■Nordic
29%
Other
54%
Liquidity Coverage Ratio
64208642086420
26
24
22
18
16
14
12
10
22221TITL
400%
350%
T
300%
250%
200%
150%
100%
50%
2011
2012
2013
2014*
2015
2016
2017
2018
2019
2020
0%
Q3 Q4
Q1
Q2
Q3 Q4 Q1
Q2
Q3 Q4 Q1 Q2 Q3 Q4
Q1 Q2
Total capital ratio
CET1 ratio
Minimum requirement for total capital ratio (8%)
2016
2017
Source: FCMF | Note: As of Q1 2014 capital adequacy is calculated according to the CRDIV/CRR
requirements and is not directly comparable with the data until Q1 2014 due to differences in
methodology. Tier 1 ratio matches CET 1 ratio. The Pillar 1 minimum Total capital ratio is 8%. Since 28
May 2014 the FCMC also applies a 2.5% capital conservation buffer.
15
Average LCR, LV
2018
Average LCR, EU
2019
Minumum requirement
2020
Source: FCMC, EBAView entire presentation